__economic thinking about sports__

Report: Selig Squashed the Jacque Jones Deal

2007 July 3

by Phil Miller

The New York Daily News reports on why the Cubs’ Jacque Jones has been left twisting in the wind:

According to various baseball sources, it was Bud Selig who kiboshed that trade of Jacque Jones from the Cubs to the Marlins last week – and not a matter of the Cubs simply having second thoughts. Seems Selig deemed the money the Cubs were to absorb on Jones’ contract as excessive. Apparently, the pending sale of the Cubs has prompted a “no more debt” edict from Selig, which may explain why there have been no further contract talks with free agent-to-be Carlos Zambrano. The fact that John Canning Jr., the billionaire CEO of Madison Dearborn Properties and a close friend of Selig’s (with an 11% stake in the Brewers) has emerged as the potential frontrunner in the Cubs’ ownership sweepstakes may also explain why the commissioner doesn’t want any more onerous contracts at Wrigley in the aftermath of the Tribune Co.’s wild spending spree last winter.

I am not convinced that if Selig blocked the trade, he did it to keep the franchise value low for his friend. The values of franchises are related to the expected future profits of the club (assuming that both buyers and sellers are motivated solely by profits). In the simplest case where a seller and a buyer have the same information, are pure profit maximizers, and have perfect foresight, the seller would never take less than expected profits and the buyer would never pay more than expected profits. This drives the franchise value to be equal to expected profits. In reality, people don’t have perfect foresight and can be motivated by things other than profits, driving a wedge between franchise values and expected profits. The ability to “play poker” in negotiations also matters. But expected profits still matter.

Taking on more debt, all else equal, obviously lowers the value of the franchise. But all else is not equal because taking on more debt can translate into a better club, which can increase long-term profits. The effects offset.

Moreover, not allowing this trade can lead to a lowering of the franchise value of the Marlins as well. They presumably felt they would be better off (i.e. more profitable) by having Jones on their roster. Why would he stiff the Marlins and the Cubs for the benefit of his buddy?